- Iowa Steakhouse opened a new restaurant on the site of an existing building. It paid the owner $520,000 for the land and building, of which it attributes $104,000 to the land and $416,000 to the building. Iowa incurred legal costs of $25,200 to conduct a title search and prepare the necessary legal documents for the purchase. It then paid $71,800 to renovate the building to make it suitable for Iowa’s use. Property and liability insurance on the land and building for the first year was $24,000, of which $8,000 applied to the period during renovation and $16,000 applied to the period after opening. Property taxes on the land and building for the first year totaled $30,000, of which $10,000 applied to the period during renovation and $20,000 applied to the period after opening. Calculate the amounts that Iowa Steakhouse should include in the Land account and in the Building account. (10 points)
- Sears reports in millions of dollars on its balance sheet for year-end Year 6 and Year 5 as follows:
|
Year 6 |
Year 5 |
|
| Credit Card Receivables |
27,371 |
24,932 |
| Less: Allowance for Uncollectibles |
(821) |
(808) |
It reports charge-offs [synonym for write-offs] of accounts receivable during Year 6 of 4.5 percent of its average gross receivables of $26,000 million and that Bad Debt Expense is 3.5 percent of credit card sales. What were Sears’ credit card sales for Year 6? (6 points)
- For the following six items, assume that Talbot Company, a growing profitable company, has large and growing inventories. Assume that Talbot Company has been using a FIFO cost flow assumption and plans to switch to LIFO for both financial reporting and tax reporting. Assume that Talbot pays all income taxes currently, as accrued, in cash.
Required:
Fill in each of the blanks below with one of these: larger, smaller, unchanged, or insufficient (information given to answer question). Several years after the switch from FIFO to LIFO: (12 points)
| 1. | Working capital will be __________. |
| 2. | Accounts payable will be __________. |
| 3. | On the statement of cash flows, cash provided by operating activities will be ___ |
| 4. | Total shareholders’ equity will be __________. |
| 5. | Deferred tax balance on the balance sheet will be __________. |
| 6. | Inventory turnover will be __________. |
- Inventory flows for Toy Elmo Company for the month of January are as follows:
|
# of units |
Unit cost |
|
| Beginning inventory* |
250 |
$1.00 |
| Purchases: |
|
|
| January 3 |
100 |
1.10 |
| January 15 |
150 |
1.15 |
| January 17 |
300 |
1.05 |
| Sales: |
|
|
| January 5 |
200 |
|
| January 18 |
100 |
|
| January 24 |
150 |
|
*Assume the same for FIFO, LIFO, and weighted average cost flow assumptions.
Required:
Compute the cost of goods sold and ending inventory for the Toy Elmo Company using cost flow assumption and the following assumptions: (18 points)
| a. | FIFO under a periodic inventory system |
| b. | LIFO under a periodic inventory system |
| c. | Weighted average under a periodic inventory system |
| d. | FIFO under a perpetual inventory system |
| e. | LIFO under a perpetual inventory system |
| f. | Weighted average under a perpetual inventory system |
